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RETAIL OPERATIONS .

6. WAREHOUSE & SUPPLY CHAIN MANAGEMENT: Merchandise reorder, planning and organizing merchandise

receipts, storage, transportation, information management in thesupply chain.

7. LOSS (SHRINKAGE) PREVENTION:

significant part of retail operations that ensures better marginsfor the stores.

8. CASHIERING PROCESS: front end and back end cash management including banking.

9. VISUAL MERCHANDISING AND DISPLAYS: Done at store level involving conceptualization of themes and

Visual merchandising operations.

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STORE OPERATING PARAMETERS

DIPSTICKPARAMETER

Enables retailers to find out about the health ofspecific areas of operation - customers, stock,space, employee, finance etc.

CUSTOMER

TRANSACTIONS

How many customers visited the store, what

percentage bought, has conversion rate gone up,what is the day to day average cash memo valuecompared to last month or last year.

CUSTOMERCONVERSION

RATIO

% age reflects the retailersability to turn a potential

customer to a buyer andgauges efficacy of promotionalactivity

(No. oftransactions/

Customer traffic) x100

RETURN TO NETSALES

Indication of customersatisfaction not being met and

quality of merchandise

(Total returns &allowances/ Net

sales) x 100

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STORE OPERATING PARAMETERS..

TRANSACTIONPER HOUR Hourly variation in salesactivity could be importantin setting store hours

No. of transactions/No. of Hrs.

SALES PERTRANSACTION

(AVERAGE T.OVALUE - ATV)

Used to study sales trendover time and helps to

determine whether betweenhigh volume sales or highrupee sales

Net sales/ no. oftransactions

HOURLYCUSTOMER

TRAFFIC(FOOT FALLS)

Used for tracking totalcustomer traffic. Automaic

counting machines arerequired

Customer traffic in/No. of hours

STOCKS Helps to find out if the storeis overstocked or understocked and in which

category or SKU

No. of SKUs xpurchase price

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AVERAGE SELLINGPRICE Total value of goods sold/ Total quantity

AVERAGE STOCKPRICE

Turning stock aroundefficiently yields betterprofits, the more the

margins

Total value of goodsin stock / Totalquantity in stock

STOCK TURNOVER/ INVENTORYT.O RATIO

Ratio indicates how oftenthe inventory is sold andreplaced. Declining ratiosexhibits excessive

inventory

Net sales/ Averageretail value ofinventory

PER CENTINVENTORYCARRYING COSTS

Importance has increaseddue to high interest rates.Prevents blockage ofworking capital and also

indicates obsolete stocks

(Inventory carryingcost/ Net sales) x100

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GROSS MARGIN

RETURN ONINVENTORY(GMROI)

Compares the margin on

sales with the original costvalue of the merchandise.Can be altered by changinginventory

Gross margin/ Av.

value of inventory

MARK DOWN

GOODSPERCENTAGE

When ratio increases,

merchandise practices haveto be seen. Can besymptoms of poor buying,advertising and store layout,

(Net sales at mark

down/ total netsales) x 100

SHRINKAGE TO

NET SALES

Does not indicates cause of

shrinkage but magnitude ofthe problem

(Actual inventory

Book Inventory)/(Net sales) x 100

SPACE - GROSSMARGIN RETURNON FOOTAGE(GMROF)

Critical to retailing Sales per area ofsq ft/ day

Margins per sq ft/day

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STORE OPERATING PARAMETERS..OCCUPANCY COSTPER SQUARE FOOT

SELLING SPACEStore performanceis proportional toGMROF (footage)

For a multi unit retailer it is ahelpful measure for

comparing the performanceof units at different locations.(Expressed in rupees)

Occupancycost/ Sq ft of

selling space

STOCK PER SQUARE

FOOT

This ratio will vary according

to type of merchandise.Compares the performance ofdifferent depts. or storesusing common standard.

Net stock/ Sq ft

of selling space

PERCENTAGE OF

SELLING SPACE

Catalogue showrooms have

little selling space, while shoestore has little non sellingspace

Selling space in

sq ft/ Totalspace in sq ft

NET SALES PER FULLTIME EMPLOYEE

GMROL (labour)

Indicates employeeproductivity. Used for setting

performance targets

Net sales/ Totalfull time

employee

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STORE OPERATING PARAMETERS..SPACE COVERED /

CUSTOMERSERVED PER FULLTIME EMPLOYEE

Extensively used by large format

retailers like dept stores

(Total retailing

space/ No. ofcustomersserved)/ Total fulltime employees

LABOUR

PRODUCTIVITY

Tracks labour cost. Applied solely

to sales employees

Total labour cost/

Net sales

GROSS MARGINPER FULL TIMEEMPLOYEE

Gauges sales employeesperformance

Gross margin/Total full timeemployee

SUPPLIERS/QUANTITY ORVALUEPURCHASED BYBUYER

Research indicates averagebuyers ability to makeappropriate decisions aboutbuying declines as no. ofsuppliers increase. This has to belooked into with no. of SKUs the

average buyer handles

(Total suppliers/Qty or valuepurchased)/ Totalbuyers

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FINANCIAL PRAGMATIC COST SHEETTOWARDS PROFITABILITY

SALES & OTHER INCOME 100

COGS 70

SHRINKAGE 1

OCCUPATION COST 7

EMPLOYMENT COST 5

ADVERTISING & PROMOTION 2

ENERGY COST 2

OPERATIONS & ADMINISTRATION 5

PBIT 8

INTEREST 1

DEPRECIATION 2

PBT 5

In some malls in NCR region occupation cost is 20% to 25%

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STRATEGIC RESOURCE MODEL (SRM) INRETAILING

1. Gross Margin Return on Inventory(GMROI)

2. Gross Margin Return on Selling Area

(GMROF)3. Gross Margin Return on Labour (GMROL)

SRM MEASURES PERFORMANCE OF THREERESOURCES IN RETAILING

A price cut requires an increase in merchandise productivity (through

increases conversion and buying), and space and labour productivity

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SIGNIFICANCE OF RETAIL RESOURCESMargins Inventory Space People

Gross margin is thespread betweenbuying & sellingprices. Readjustmentof markdowns &

shrinkage may makeall the difference

High cost ofholding

Extremelyhigh cost ifholding the

wrong kind

Costs 20-40%of operatingexpense

Could be amajor fixed

cost

Typically 15%- 40% ofoperatingexpense

Optimised technologyinvestments improvenet margins

5080% ofworkingcapital

40-60% of allassets

25% - 50% ofall assets

Costs Rs.4000

to Rs.10,000per sft tobuild

Costly to get& retain

Not enough

people withright skills &attitude

Favourably Bought WiselyChosen

WiselyChosen &

Utilized

IntelligentlySelected &

Trained

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SRM SENSIVITY ANALYSIS

1. Level of gross margin

2. Level of inventory productivity

3. Degree of merchandise intensity

4. Degree of service (by people) intensity

The SRM model suggests the retailers candevelop strategies that vary on followingfactors

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STRATEGIC RESOURCE MANAGEMENTMODEL

Gross margin

Net sales

Net salesInventory

Inventory

Selling feet

Net sales

Selling feet

Selling feet

FT Employee

Net sales

FT Employee

Gross marginInventory

Gross margin

Selling feet

Gross margin

FT Employee

Stock turns

Merchandiseintensity

Sales per sft

Service intensity

Sales peremployee

=

=

=

GMROI

GMROF

GMROL

Gross margin %

Gross marginreturn oninventory

Gross marginreturn on

footage

Gross margin

return onlabour

X

X

X

X

X

=

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DISCUSSION QUESTION

1. What are the key factors you would

consider while designing a performance

program for a retail store?2. Design a template that describes the

operating financial parameters for retail

store operations?

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PARAMETERS FOR MEASUREMENT

1. Walk-ins and Conversion

Number of people who walk into the stores within a pre-determinedperiod of time (daily, hourly, monthly).

2. Average Transaction Value

The value worth of goods purchased by the customers.

3. Display to stock ratio

The amount of backroom inventory maintained as a backbone to that

displayed in the store

4. Sales per sq. ft.

This is a very important retail performance benchmarking ratio

Indicative of the performance of the sales staff.

5. Sales per employee

A motivated sales team is one of the keys to better conversion in the

outlet.

6. Inventory turnover rate

It is measures the number of times during a year that a company replaces

its inventory.

7. Gross margin per sq. ft.

Indicative of the profitability of the Retail space.

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Calculate the GMROI and inventory

turnover given an annual sales of Rs.

10,00,000, average inventory (atcost) of Rs.1,00,000 and a gross

margin of 45%?

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GMROI OF SELECTED DEPARTMENTS IN

DISCOUNT STORES

Department Gross

Margin %

Sales-to- Stock

Ratio

GMROI

Apparel 37 6.35 235

House wares 35 4.63 162Food 20 8.75 175

Jewelry 38 3.24 123

Furniture 31 4.09 90

Health & beautysupplies

22 5.14 113

Consumer

electronics

21 5.05 106

Wall-Mart & Target emphasize apparel and de-emphasize furniture

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MEASURING SALES TO STOCK RATIO

Month End of Month Inventory at Retail Price

January $ 22,000

February 33,000

March 38,000

Total Inventory 93,000

Average Inventory 31,000

Retailers normally express sales-to-stock ratios (and inventory turnover) onan annual basis rather than for a part of the year. If the sales to stock ratio

for a 3-month season equals 2.3 , the annual sales-to-stock ratio will be 4

times that number (9.2).

Another method is to take the end-of-month inventory for several months

and divide by the no. of months.

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